The “GREAT CALL”…”This is a default just waiting to happen.”
SilverDoctors.com
August 7, 2015
Submitted by Bill Holter, JSMineset:
The world is awash with “promises”. Nearly everything we think of as having “value” is because of a promise behind it. A few examples; your bank accounts, retirement funds, bonds and even the dollar bills in your pocket. Your bank account for example, once you deposit the money it is no longer yours. You can argue this if you wish but we now know this is true for sure after recent “bail in” legislations passed throughout the west. When you deposit funds into a bank, it then becomes “their money” held for you …they “owe” it to you.
Do not take this lightly, lawmakers around the world have made this the new reality. A little known fact, in 1845 Britain passed banking law that made depositors (unsecured creditors), this is still precedent to this day. When you deposit money you “accept a liability” from your bank and are classified as an unsecured creditor. In other words, “get in line with everyone else”!
Same thing with many retirement accounts. Think about Social Security. When you get your annual statement form, it comes with an asterisk. This is to inform you they “might need to reduce benefits”. With any retirement account you are relying on the custodian to make payments to you upon retirement. Think about state and municipal retirement accounts promising the good life, they are nearly ALL underfunded. Meaning there is not enough money in there to make (promised) future payments unless some sort of magically higher returns are realized. These are underfunded by the TRILLIONS of dollars!
Bonds are an obvious asset class where a “promise” is relied on. Dollars on the other hand seem the most misunderstood by the public while being the biggest leap of faith in all asset classes. Dollars rely on the “full faith and credit” of the U.S. government (a bankrupt entity) yet the populace sleeps through the night secure knowing they own dollars. ALL non backed, fiat currencies in the past have failed. The dollar is the widest spread and widely owned fiat the world has ever known, its failure will be spectacular upon arrival!
I wanted to point out the above “promises” as a basis to speak about trust or confidence. The financial world turns on the axis of “trust”. This trust was nearly broken in 2008 and is the reason the Federal Reserve needed to secretly lend $16 trillion all over the world. If the Fed had not come up with these funds, failures would have spread and trust would have been broken amongst the banks/other financial institutions and even between the central banks themselves! The Fed’s largesse worked and trust was maintained.
Now, I believe we are set for another “test” of trust. We have gone five+ years with QE this and QE that, the reality being outright monetization. In fact, central banks today are buying more sovereign bonds than are even being issued. The public and even the professional funds have backed away from the debt markets, you can’t blame them because the interest received does not even cover inflation not to mention a risk premium. Globally the pace of trade and business activity is slowing or even declining which will bring to a head the difficulties in meeting debt service and other “promises”.
I ask, what will happen when inevitably “trust” begins to wane? Or even fully break? It is at this point the system goes into “The Great Call”. Margin call? Of course, because nearly everything financial has leverage behind it but there is more to it than this. The “call” I am speaking of is for contracts of all sorts to “perform”. In particular I am thinking “derivatives” contracts will be called on to perform their contractual duties.
The Rest…HERE
